Capitalism relies on innovation, labour transitions, and personal advancement opportunities in order to function. Labour transitions lead to economic hardship and social stress for all sectors of society. These effects are felt most keenly by the poor, who are least able to effectively transition to new employment when such action becomes necessary.
This article explores the idea of a social welfare system designed to streamline these reallocations of labour. A social welfare system seems to be well suited to solve these ever-present practical difficulties that are inherent in capitalism. This is not a replacement of capitalism, but an enhancement of it.
There are a number of other practical, social, and ethical benefits to this proposed social welfare system. These are discussed in some depth, but we do encourage the interested reader to also read broadly on these topics elsewhere.
Economic development demands labour transitions
For most of human history, meeting our basic needs such as food, water, shelter, and clothing required most or all of our effort. This has rapidly changed in the modern era. Meeting our basic needs once required the full effort of most of the population, but our constant innovation has led to a vastly reduced need for human labour in the process of fulfilling our basic needs.
As people are freed from the necessity of acquiring basic needs, they must find ways to make themselves useful to the rest of the population so that they can trade goods and services in exchange for having their needs met. This is the foundation of specialization and the hallmark of improving technology.
As we continue to employ our knowledge and utilize more non-human energy, we are reducing the number of human hours that are are required to meet our basic needs. As we innovate existing industries, they require fewer human hours per unit of production or service. Each of these innovative tendencies leads to an increase in the number of people who are not employed in these fields. Where does this leave us?
New products and services are created along with the requisite industry and infrastructure required to make them possible. In essence, these new products and services represent the advancing affluence of a society. Every innovation of production leads to more human hours being available for making our lives richer, healthier, and more satisfying.
We think everything said above is true, but it is only part of the story.
What happens when an industry innovates? Fewer human hours of work are required to produce the same amount of product or service. Innovation on a broad scale thus leads to reduced employment, because it is reducing the number of people who are employed.
On the other hand however, innovation is what also drives the growth of employment. People find a niche for a new product or service. If it is desirable and well-executed, such a proto-industry tends to grow very quickly in today’s world. Sometimes these new and fast-growing industries replace older industries completely. For example, the rise of personal computing rendered a whole host of older technologies obsolete.
Who is in the best situation for innovation?
Employment tends to fall in those industries which implement advanced systems of mechanization and human resource management. This is generally the case in profitable industries where there is enough extra money that such advances in technology can be capitalized upon.
While necessity can help drive innovation, the primary preconditions for innovation in today’s world are capital, time, and education. Who are the people in our society who possess these three factors to the greatest degree? The wealthy elite tend to have greater access to capital and higher level education than their working-class counterparts. Money in the bank means that a person can survive for longer periods of time as they attempt to innovate. It seems clear that those people who are in the best position to innovate in the marketplace are the wealthy elite.
Who are most likely to lose their jobs?
The people who are most likely to lose their jobs when large-scale innovation takes place are those people whose tasks are most easily accomplished by computers and mechanization. Generally the more complicated and advanced a position is, the less likely it is to be replaced by such innovation (though it can certainly happen, as we discuss below). Presently, the people who are most likely to lose their jobs are on the lower end of the working class because they tend to work the jobs that are most easily automated.
This leads to a situation in which the people who are most likely to lose their jobs are also those least able to innovate (such as by creating a new business from the ground up). They are also the people who are most likely to need to find a new area of work, since all of the companies in a given industry tend to advance at a similar pace. A job lost in one company due to innovation is unlikely to be replaced by a similar job in a company in the same industry. Most likely the other company is making efforts to innovate as well. Entire areas of work can become obsolete rather quickly in the world of today.
As technology becomes ever more sophisticated, mechanization will be taking on ever more complex tasks. It is not uncommon for a very sophisticated human job to be replaced by machines. Incredibly complex systems like communications or transit networks are now managed almost entirely by machines. Mechanization is often seen as a threat to personal livelihood because it can make entire skill sets obsolete. As the technology and knowledge of the human race advances, we will continue to see replacement of jobs across the socioeconomic spectrum. This is a problem that will never go away as long as innovation or mechanization are taking place.
What should be done?
Transformations of labour are one of the foundations of an evolving market system. If we are innovating and improving our productivity, then it is clear that demand for various skills will rise and fall. Skills can become more or less useful depending on the transformations caused by the natural evolution of the market. Generally however, skills tend to go out of date. People need to continue to learn through their working lives to remain consistently employable in a modern economy.
This argument for social welfare is based on the understanding that easing these labour transitions will lead to a healthier market. The goals are threefold:
- make it easier for businesses to find skilled workers that they need.
- make it easier for working-class people to re-educate themselves in the case of a job loss and a need for a transition to a new skill set or industry.
- make it easier for working-class people to survive the inevitable transition periods between jobs. (As discussed above, these transitions will always exist in an innovating capitalist system.)
How should this solution be implemented?
Caveat: This discussion is reserved for those who can work. Those individuals who cannot work must be considered separately (as they already are) by the social welfare systems.
Guarantee to all citizens that their basic needs will be met during the transition period between jobs. This means that a person should not have significant difficulty acquiring food, shelter, water, electricity, etc. They should also be able to afford at least minimal transportation that will allow them to attend credentialing classes and look for jobs.
To be eligible for this living stipend, the person must be either actively looking for work or pursuing an educational credential that directly relates to their employability. An example of this would be an updated certification required for labour that is now in high demand by industry. Careful application of this rule will minimize the ability for freeloaders to use this system to support themselves indefinitely without working.
A number of interesting implementations are possible with regards to subsidizing re-education and credentialing. A single illustrative example might be a situation in which companies who plan at least a few months ahead could place bids for certain types of jobs that they will be hiring for in certain periods of time. Fictional example: “WaterTechSteel Corporation will need 35 welders trained in MIG welding in Waterloo, Ontario in May 2011.”
Alternatively, the government could fund cost-effective education systems that will credential new entry-level employees of firms. In this case it is more clear how this social spending would be an aid to both the employee and the employer.
Some extra benefits to this approach
- A healthier entrepreneurial sector, evidenced by such healthy entrepreneurial nations such as Norway. Their entrepreneurs don’t have to worry about dying destitute if they fail. They try a lot of things, and their stress levels are lower because they worry less about failure. They are more free to innovate because they are not constantly taking extensive measures to ensure that they can meet the basic needs of themselves or their families.
- Reducing the Gini Coefficient, which is a measure of inequality in a population. A lower coefficient means more equality (people tend to earn closer to the same amount of money). Inequality tends to cause social and economic fractures within a society. Cultures with very high inequality tend to have very little social mobility, one of the foundational requirements for a healthy capitalist market. This is a broad and deep topic that deserves careful study for anyone who holds a strong opinion about it (in either direction). A good overview is provided by the Wikipedia page on Economic Inequality.
This would be too expensive
A number of extremely successful and affluent nations already have systems like this in place. As linked above, the Norway startup community is an excellent example.
In North America, where such a system as this would be very beneficial, the rich (and corporations) are taxed relatively minimally. In the interests of a healthier (and more just) economic system, it makes abundant sense to tax those who can easily pay, and turn around and use that money to help lay a firm foundation for a better society. This tax solution would also help reduce the dangerous economic inequalities that are growing in North America.
Can the rich afford to pay? Yes. Analysis of inflation-adjusted and purchasing-power-parity wages reveals that wages for the working class in the USA have been stagnant for decades. Where has all the economic growth gone? Into the pockets of the wealthiest 20%. Decades of economic growth has led a wealthy class in the USA that is becoming ever-more staggeringly rich and a poor class that is actually growing in proportion to the population. There are many reasons to address these grievous and growing economic inequalities. This piece is an additional argument for doing so, it is by no means a look at the entire picture. The author suggests that you the reader dig deeply into this topic regardless of which direction your beliefs currently have you leaning.
This won’t help with innovation
Innovation is a product of both opportunity and preparation. This system should provide more of both to those people who find themselves out of work.
Better educated workforces are more valuable to their employers. When this cost is carried by the social system rather than corporations, it will lead to steady improvement in the level of education of the working class. Workers with more and better abilities correlate directly with higher standards of living. Our whole society will benefit from having a more educated and economically stable working class.
Closing anecdote: J.K. Rowling wrote the first Harry Potter book while on social welfare assistance in the U.K. Now she is the first author billionaire. Most people would say that her innovation was economically valuable.
People will just be lazy
As stated above: if people are capable of working, require that they are either a) looking for work, or b) gaining an educational credential towards gaining employment in a field. If this system is well-administered, social freeloading will be extremely hard to do.
Countries tend to have systems already established for ascertaining whether a person is unable to work. Here we are not discussing the subject of how society should treat those people who are unfit for work.
We don’t want to pay
The continual creation of unemployment and labour shifts is a direct result of how our market system operates. North American culture tends to not acknowledge that there is an actual problem here.
The overriding theories of rampant individualism and “every man for himself” have broad appeal today, especially in North America. Part of this appeal is based on the belief that by adopting such concepts on a broad scale we will end up with a true meritocracy where the most talented and hardest-working will rise up the economic ladder to their level of competence.
Most people believe that a meritocracy is a goal to strive towards in terms of both its positive ethical quality and its economic efficacy. If we want to live in a true meritocracy, we have to look at how to actually create one. An alternate title for this piece could have been “From Capitalism to Meritocracy”.
This piece is about the large number of people who end up getting the proverbial ‘short end of the stick’ because of the way that our economic system works. The prosperity of the system as a whole is based heavily on the productivity of the working class.
A system such as this would contribute towards a better educated populace, a healthier entrepreneurial sector, a happier and more secure working class, and a more stable society thanks to improved equality.
The financial cost is bearable and does not present a detriment to the continued function of a healthy market. A number of excellent examples of social welfare states exist. Nations such as Norway are consistently near the very top of the Human Developmental Index (HDI). In fact, Norway was #1 in the world in the year 2010. An even more telling statistic is that in 2010, the United Nations Development Programme (UNDP) reported an additional list which was an inequality-adjusted human developmental index. The Scandinavian countries are ranked extremely highly on this modified list. The relatively large inequalities in the United States causes it to fall from fourth place to twelfth place. The effect of inequality on quality-of-life has been noticed, and is garnering more attention today.
Continued opposition to social policies such as these represents a denial of the facts. Stark individualism is often argued more as a philosophical position than as a practical one. That is, people declare that individualism is ‘right’ rather than declaring that it is practical. The practicality of a matter is the reality of the matter. Anyone concerned with the real issues of prosperity and well-being will primarily focus on what is actually known rather than what they believe to be true.
It is also important to note that such a transition towards social welfare would likely lead to long-term gain even for those people who do not feel that they would directly benefit from the program. As elaborated above, a more educated, more stress-free, and more equal society is of benefit to us all.
Political pandering to the poorest people
People have leveled objections to this sort of social welfare on the grounds that it is political pandering to the poorest sections of the populace.
This is to some extent true. The poorest sections of the working class would have a great deal to gain from seeing such a system put in place. The poorest people should demand this change because it would be very good for them.
It is however important not to stop the discussion there. This article has detailed a number of different advantages of such a system. Many of these advantages lead to a more prosperous and happy society in general.
The poor won’t be the poor forever
As mentioned earlier, a healthy capitalist system depends on high social mobility. Social mobility is the ability of a person to climb the ranks of society based on their merit rather than their class of birth. Many people who are currently poor will be able to climb these social rungs, even with the system as it is. In order to do so, they will likely have to be innovative and hard-working. Their industriousness will fuel continued improvements in our prosperity.
Social welfare will help to remove the current impediments for social mobility. This will happen for a large number of reasons, but the simplest is that social welfare leads directly to a flatter income distribution. When the economic distinctions between the classes shrink, the social barriers between classes tend to be reduced. A larger middle class is the likely result of the long-term application of this policy. “The poor” would no longer be poor.
The wealthy should want social welfare as well
Enlightened self-interest is the idea that people will choose to help others if they understand that by doing so they are also helping themselves. The ‘enlightened’ aspect of the present argument requires some degree of understanding of the broader social, economic, and political implications of this policy. This article has provided an outline of these implications, ending with the conclusion that such a policy, if well-administered, would help make our societies much more prosperous, innovative, and humane. In the interests of their own long-term prosperity and happiness, the middle and upper classes should push for this change as well.
2 thoughts to “Capitalism’s Labour Transitions – An Argument for Social Welfare”
Great article Ben!
This article was not just me! I owe a lot of these ideas to my economically-oriented friends such as Mark and Steve as well as my co-author and editor Kyle.